GM reports third quarter financial results

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15.10.2003
GM reports third quarter financial results

GM today reported net income of $425 million, or $0.79 per diluted share of GM's $1-2/3 par value common stock, in the third quarter of 2003, compared with a net loss of $804 million, or $1.42 a share, in the third quarter of 2002. Total net sales and revenues increased 5.4 percent to $45.9 billion.

Adjusted net income $448 million, or $0.80 per share, excluding Hughes
Automotive operations profitable, global market share up in third quarter
Substantial contributions, strong asset returns bolster U.S. pension plans

GM's adjusted income, which excludes results from Hughes, totaled $448 million, or $0.80 per share, in the third quarter of 2003. GM's adjusted net income in the third quarter of 2002, excluding special items and Hughes, totaled $696 million, or $1.24 per share. The third-quarter-2002 results included special items totaling an unfavorable $1.42 billion, or $2.62 per share. There were no special items in the third quarter of 2003.
"On balance, General Motors posted solid business results despite ongoing pricing pressure, lower production volumes and increased pension and health care costs," said GM Chairman and Chief Executive Officer Rick Wagoner. "And the accelerating U.S. economy and the enthusiastic response to our new products give us reason for optimism as we look forward."

GM Automotive Operations
GM's global automotive operations earned $34 million in the third quarter of 2003, compared with $368 million in the year-ago quarter. GM North America, GM Europe and GM Asia Pacific each reported market-share gains during the third quarter. GM's global market share rose to 15.2 percent in the third quarter of 2003 from 15.1 percent in the third quarter of 2002.

Net income at GM North America (GMNA) totaled $128 million versus $533 million in the third quarter of 2002. Improvements in sales mix, material-cost performance, and productivity were offset by a production decline of nearly 5 percent, intense pricing pressure and increased pension and health care expense, versus the year-ago period. The results were also affected by a $55 million favorable adjustment in GMNA's recall reserves, reflecting reduced costs associated with previously announced vehicle-recall programs, and a $27 million unfavorable adjustment for the adoption of a new accounting interpretation, FIN 46, which relates to the consolidation of variable interest entities.

GM's U.S. market share rose to 28.7 percent in the quarter, compared with 28.0 percent in the same period last year and 27.9 percent in the second quarter of 2003.

GM continued to set numerous sales records during the third quarter. In the United States, GM established a new industry sales record for total trucks, sport utilities, and full-sized pickups. Through the first nine months of 2003, GM sold 920,573 sport-utility vehicles, more than any other manufacturer has previously sold in a full calendar year. Chevrolet continued to make progress with sales rising 10 percent in the third quarter, and Cadillac is on pace to surpass 200,000 annual vehicle sales for the first time since 1994.

"We expect that our sales momentum will continue to build, based on great new vehicles that are just arriving in dealers' showrooms now such as the Chevrolet Malibu and SSR, Cadillac XLR and SRX, and the Buick Rainier," Wagoner said. "In addition, we will launch 17 more new car and truck models over the next year."

During the quarter GM reached an agreement with the United Auto Workers on a new four-year contract.

"We believe this agreement very effectively addresses the needs of our represented employees and the requirement that we continue to improve our competitive position. Our close collaboration with the UAW remains an important aspect of our steady improvement in quality and productivity," Wagoner said.

GM Europe (GME) reported a loss of $152 million in the third quarter of 2003, an improvement from the $180 million loss in the year-ago period. Continued progress in GME's cost-reduction efforts were partially offset by unfavorable currency-exchange rates.

"Our market share in Europe has improved for the fourth consecutive quarter. We expect this to continue as we launch new products, such as the highly anticipated Opel Astra, early next year," Wagoner said.
GM Asia-Pacific reported a profit of $162 million in the third quarter of 2003 compared with earnings of $76 million a year ago, led by continued strong performance at Shanghai GM and improved equity earnings from GM's Japanese automotive alliances. GM Asia-Pacific wholesale vehicle sales rose 10 percent in the third quarter, led by record sales in China.

"Our results in Asia were very encouraging. We are well positioned to participate in the continued growth in the region as a result of our joint ventures in China and South Korea," Wagoner said.

GM Latin America/Africa/Mid-East reported a loss of $104 million in the third quarter of 2003 compared with a loss of $61 million a year ago. Results were negatively affected by unfavorable economic and market conditions in Brazil and lower sales in Venezuela.

GMAC
GMAC reported earnings of $630 million, up more than 30 percent from the $476 million earned in the third quarter of 2002. Financing operations remained strong as lower credit provisions more than offset narrower net-interest margins. Results from insurance operations more than doubled compared to the prior year, when earnings were adversely affected by the write-down of certain investment securities. Mortgage operations generated the biggest year-over-year improvement reflecting higher origination and securitization volumes in both the residential and commercial mortgage sectors.

"Once again, GMAC turned in an outstanding performance," Wagoner said. "GMAC is firing on all cylinders, with all three business sectors contributing to a record third quarter."

Hughes
Hughes reported a loss of $23 million in the third quarter of 2003, compared with a loss of $81 million in the year ago period. Revenue rose to $2.6 billion in the third quarter of 2003, up from $2.2 billion in the same quarter last year, led by the growing subscriber base of DIRECTV. Total DIRECTV U.S. subscriptions increased approximately 326,000 from the third quarter of 2002 to 11.9 million.

Earlier this month, GM stockholders voted to approve transactions that would result in the split off of Hughes and the acquisition of 34 percent of Hughes common stock by News Corp. (NYSE: NWS, NWS.A). In September, GM received a private-letter ruling from the Internal Revenue Service confirming that the distribution of Hughes common stock to the holders of GM Class H common stock would be tax-free to GM and its Class H stockholders for U.S. federal income-tax purposes. The transactions remain subject to certain regulatory clearances, including antitrust clearance from the U.S. Department of Justice and action by the U.S. Federal Communications Commission. GM expects to complete the transactions in late 2003 or early 2004.

Cash and pension update
Automotive cash, marketable securities and assets of the VEBA trust invested in short-term fixed-income securities totaled $29.3 billion at September 30, 2003, excluding financing and insurance operations and Hughes, compared with $23.7 billion on June 30, 2003.

GM contributed $5.5 billion to its U.S. pension plans in September and another $8.0 billion in early October, bringing its year-to-date contributions to $14.4 billion. In addition, GM contributed $3 billion to the VEBA trust for retiree-health-care benefits in the third quarter.

As a result of the contributions, GM now expects 2003 pretax pension expense will be approximately $2.6 billion, down from the previous estimate of $2.8 billion. For 2004, GM expects pretax pension expense to decline by at least $500 million to $2.1 billion or less. However, this reduction in pension expense will be largely offset by higher interest expense related to the recent global debt offerings.

Through the end of the third quarter, GM's pension-plan assets earned a return of 14 percent. If asset returns remain at or above these levels for the remainder of 2003, the funded status of GM's U.S. hourly and salaried pension plans would improve dramatically by the end of the year and, with additional contributions, could approach a fully funded position in the near term.

Looking ahead
General Motors said the U.S. vehicle market continues to be strong. GM expects auto industry sales of approximately 16.9 million units in 2003. GM is forecasting North American production of about 1.35 million vehicles in the fourth quarter of 2003, which would bring total 2003-calendar-year production volume to approximately 5.4 million vehicles.

GM expects to earn approximately $1.00 per share, excluding Hughes and any special items, in the fourth quarter of 2003. As a result, GM said it would exceed its original 2003-calendar-year earnings target of $5.00 per share, excluding special items and Hughes.